F the optimal provision of public goods will occur if

f. The optimal provision of public goods will occur if individuals do not have an incentive to hide their
valuation of a good. This means that each individual’s cost cannot be related to his valuation.

2. Each of the following expenditures is a deduction fro the purposes of calculating a person’s federal
income tax liability:
If the income tax base were broadened by eliminating these deductions, tax rates could be lowered,
while raising the same amount of tax revenue.
For each of these deductions, what would you expect the likely effect on taxpayer behavior to be?
Discuss the pros and cons of each deduction from the standpoint of efficiency, vertical equity, and
horizontal equity. Would you keep or eliminate the deduction?
Solution : Chap 12 problem…

3. You live in a town with 300 adults and 200 children, and you are thinking about putting on a play to
entertain your neighbors and make some money. A play has a fixed cost of $2,00, but selling an extra
ticket has zero marginal cost. Here are the demand schedules for your two types of customer:
Price Adults Children
$10 0 0
9 100 0
8 200 0
7 300 0
6 300 0
5 300 100
4 300 200
3 300 200
2 300 200
1 300 200
0 300 200
Solution : Chap 15 problem…
a. The marginal revenue from selling to each type of consumer is shown in the following tables:
Price
Quantity
of Adult
Tickets
Total Revenue
from Sale of
Adult Tickets
Marginal
Revenue from
Sale of Adult
Tickets
10 0 0-
9 100 900 900
8 200 1600 700
7 300 2100 500
6 300 1800 -300
5 300 1500 -300
4 300 1200 -300
3 300 900 -300
2 300 600 -300
1 300 300 -300
0 300 0 -300